Concern At New Current Account Charges
A consumer group has voiced its concern about the fees and charges attached to a new breed of current account.
Some banks use cash bonuses to entice customers to sign up, but overdraft charges can be as expensive as £5 a day.
Which? said it believed banks were planning to end free banking if they lost their landmark battle over charges with the Office of Fair Trading (OFT).
The British Bankers Association said the accounts were simply the product of a competitive marketplace.
Earlier this month, Halifax Bank of Scotland launched its Reward Current Account, which offers a monthly cash bonus of £5 if £1,000 is paid in during the month.
However, if a customer goes overdrawn, even with a prior agreement, it will cost them £5 a day for an unauthorised overdraft.
A similar current account from the Alliance and Leicester is offering new customers a £100 bonus just for signing up.
Again, the unauthorised overdraft costs £5 daily.
Also becoming more common are so-called packaged deals.
Two have been launched by the Abbey, offering discounts and free insurance in return for a flat fee of £15 a month.
An Abbey spokesman said: “There is no connection whatsoever between us launching packaged accounts and the end of free banking.”
Referring to the two accounts that charge a fee, he said: “Added value accounts such as these can be great value – but only when customers actually use the benefits.
“Our accounts have been designed so that the benefits are relevant to the needs and lifestyles of our customers and they can maximise the value they get from their account.”
Phil Jones, head of money research at consumer group Which?, said a new trend was developing while the OFT inquiry into the legality of bank charges rumbled on.
“Well it seems like a bit of a coincidence that while this court case is going on – and it looks like the banks are going to lose and have to repay consumers what they’ve unfairly charged them – that they are actually introducing a whole range of accounts with different charging structures.”
But the British Bankers Association dismissed this claim as nonsense, saying accounts like these aimed to attract customers in a competitive marketplace.
Brian Capon, assistant director of the BBA, said cash bonuses were simply part of a bank’s attempts to gain an advantage.
“With the interest rates we’ve got at the moment, which are quite flat, the banks are looking to get A competitive edge… so really it’s to have that little bit of something [extra], that unique selling point.”
Some MPs however say it is a worrying development on the part of the banks and are urging them to spell out the true cost of these deals when selling them.
“If there is the slightest doubt on transparency, then they are laying themselves open to charges that these costs are hidden,” said John McFall, chairman of the Commons treasury select committee.
“The lesson for the banks, after the debacle of recent years, is that they cannot get away with hidden charges… so let them be transparent, let them be open and honest with consumers about what they are letting themselves into.”
New Debt Legislation Comes Under Fire
A new way to help people on low-incomes clear their debts has been criticised by a leading creditor organisation.
Debt Relief Orders are available to people who do not own a home, have less than £300 in assets and an income of no more than £50 a month.
The government says the orders will offer hope to people in debt and keep them from using loan sharks.
But the Civil Court Users Association says the help for debtors is at the expense of creditors.
Debt Relief Orders can be applied for from 6 April if the debts owed are no more than £15,000 and there is no foreseeable way the money can be repaid.
Instead of going through a court, debtors apply to the Insolvency Service through an intermediary like Citizens Advice.
Sleepless nights
“Karen” from North Yorkshire said she is going to apply.
She took out loans when she had a job. But now she owes £8,000 to a number of creditors, has almost no assets and no earned income.
She said the presure of being in debt is affecting her health: “It got to the point where I was actually physically sick last week. I still have sleepless nights. I just don’t have the money to pay it.”
A Debt Relief Order costs £90, which can be paid in instalments rather than the hundreds of pounds it costs to go bankrupt.
Citizens Advice estimates upto a third of clients they advise on debts each year could be eligible – around 50,000 people.
Sue Edwards from Citizens Advice has welcomed their introduction.
“They offer people on very low incomes – who cannot pay their debts off within their lifetime – light at the end of the tunnel,” she said.
If the order is granted, the debts are discharged after a year.
Desperate means
Some of creditors are worried that they are too cheap and too easy to apply for, given the serious situation people with debts find themselves in.
Jeremy Sutcliffe, vice president of the Civil Court Users Association, told the programme: “We believe the government is continually assisting debtors at the expense of creditors.
“We think these sorts of things get in the way.”
The Insolvency Service said that intermediaries will be expected to make basic checks and anyone found to be dishonest can have their order revoked.
Pat McFadden is the government minister responsible for the Insolvency Service.
He believes there are sufficient measures to safeguard creditors’ interests and the orders are needed to stop people in debt resorting to desperate means.
“For many it can be a desparate situation. If it was unresolved, they could even find themselves being driven into either very high interest lending or even loan sharks.”
Uncertainty Over Mortgage Support Scheme
Support for a scheme for homeowners struggling to make mortgage repayments remains uncertain as a deadline for lenders to show their support has passed.
50% of building societies will not take part in the Homeowner Mortgage Support Scheme, according to the head of one building society.
The government said it would soon release details of participating lenders.
The scheme, to start in April, defers payments for some people who suffer a temporary loss of income.
In December, Prime Minister Gordon Brown said that people made redundant or who face a “significant loss of income” would be allowed to defer a proportion of interest payments for up to two years.
He suggested that the eight largest lenders – HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays, RBS and HSBC, which together provide 70% of mortgages – have agreed to sign up to the scheme.
One lender, Saffron Building Society, has become the first to announce that it would not sign up – although it applauded the sentiment of the scheme.
“We have concerns that the reporting and administration requirements under the scheme are overly burdensome, especially as we do not believe that this scheme is likely to provide any additional help to our borrowers,” said chief executive Andy Golding.
He estimated that 50% of building societies would not sign up to the scheme, generally for the same reasons.
Paul Broadhead, of the Building Societies Association, told the BBC’s Working Lunch that the complexity of the scheme meant that a 200-page document was sent to building societies only a week ago.
An initial deadline of 20 March was set for lenders to signal their support to the scheme but the government said that it would not yet release names of the participants.
A spokesman for the Department of Communities and Local Government, said: “We are urgently continuing discussions with lenders on joining the scheme and it is wrong to suggest there is a cut off point for signing up. We want to see as many lenders as possible participating in the scheme.
“As we have previously said, the scheme will be open for business with the first lenders in April and will make a real difference to households who are worried about meeting their mortgage payments in the difficult economic climate.”
A series of conditions have already been outlined for those homeowners who could benefit from the scheme.
Those who have a “temporary” loss of income, have a mortgage of less than £400,000, and savings of less than £16,000 will have the opportunity to be involved.
Their monthly payments would be reduced to a minimum of 30% of what they were paying before, and the deferred amount would be added to the outstanding mortgage to be paid later.
Opposition parties said in February that the scheme was announced hastily to grab publicity, without having been properly thought out.
The government has been keen to show its support for struggling homeowners amid gloomy data regarding housing and employment.
This week figures showed that UK unemployment rose above two million for the first time since 1997 and other data showed that gross mortgage lending fell by 60% in February compared with the same month a year earlier.
Large Rise In Online Banking Fraud
Software allowing fraudsters to track what you type led to the level of online banking fraud more than doubling in 2008, according to a banking security experts.
Fraudsters use keylogging software – which tracks keystrokes on a computer and can be used to gather passwords and credit card numbers.
Online banking fraud jumped to £52.5m last year, up from £22.6m in 2007, said UK payments association Apacs.
Total fraud losses on UK debit and credit cards rose by 14% to £609m.
Most victims of card fraud are not liable, so their money is refunded.
Malicious programs
Online banking has become increasingly popular in recent years, with consumers becoming more comfortable using their home computers rather than queuing at branches.
But fraudsters tend to adapt to new technology more quickly than consumers, so online banking fraud losses have been rising steadily in recent years.
The £52.5m stolen from accounts in 2008 compares with £12.2m in 2004.
Malicious computer programs, including those that track what users type without their knowledge, generally find their way onto computers when users click on an unsolicited e-mail.
“The industry continues to remind customers to ensure that they have their computer’s firewall switched on and anti-virus software up to date,” said an Apacs spokeswoman.
Targeting cards
UK credit and debit card fraud had been falling following the introduction of chip-and-pin, but in 2007 and 2008 the figures have started to rise again.
The biggest area of card fraud continued to be with goods bought over the internet, phone or by mail order – where chip-and-pin was not used. Fraud levels in these instances rose 13% to £328m.
The most significant rise in 2008 was when criminals took over other people’s accounts, known as card ID theft, with losses up by 39% to £47.4m.
Apacs said that, although card fraud losses had increased during the last year, losses as a percentage of card turnover were falling, dropping to 0.12% of turnover in 2008 from 0.14% in 2004.
The group also stressed that over the last five years, the most rapid acceleration in fraud has not been in the UK, but by fraudsters using UK card deatails overseas.
This was usually in countries where chip-and-pin technology was not in place. Apacs said it was putting pressure on countries such as the US to introduce chip-and-pin.
Anyone in the UK who is a victim of fraud is not liable, under terms outlined in the Banking Code. As long as they have not acted fraudulently or without “reasonable care”, they will be reimbursed if somebody uses their card, steals it, or clones it.
The code says that if somebody uses a card before it is reported lost or stolen, or somebody knows a Pin, then the victim could have to pay the first £50 that is lost.
Bailiffs Denied New Entry Powers
The government has announced bailiffs will not be allowed to force entry into people’s homes on a first visit to collect debts.
The proposal had been considered as part of the Tribunals, Courts and Enforcement Act.
But the Ministry of Justice has announced such a change will not now be considered until the industry is regulated in 2012.
Currently most bailiffs can only force entry if they have been previously invited into the house by the debtor.
Speaking on BBC Radio 4’s Money Box, Justice Minister Bridget Prentice said the decision was based partly on current economic circumstances.
“Secretary of State Jack Straw asked me last year to have a complete reassessment of the provisions of the act given the current economic climate. We don’t think they are appropriate at the moment.”
The minister also felt that allowing stronger entry powers was inadvisable in the absence of the bailiff industry being properly regulated.
“The idea of someone entering your house to seize your goods is a very serious one and so it really is important that we get everything set up with a proper regulatory authority,” she said.
Long campaign
Citizens Advice and other organisations which deal with debt have campaigned for changes in the way bailiffs operate for years.
It has welcomed the postponement of increased powers to force entry.
However Citizens Advice social policy officer Peter Tutton would like the government to act more quickly than 2012 on the issue of regulation.
“Bearing in mind the enforcement white paper was in 2003, we’re talking nine years to bring to bring a relatively small sector into regulation,” he said.
“We’d really like the government to do this as quickly as possible.”
Regulation is made potentially difficult because of the wide variety of different bailiffs authorised in different ways and pursuing different sorts of debts.
Debt charities say many of the complaints they receive are against bailiffs collecting unpaid parking fines and Council Tax.
Claire Sambrook is chair of the High Court Enforcement Officers’ Association.
It represents companies which pursue debts over £600 where a High Court writ for collection has been issued.
Although Ms Sambrook was disappointed by the government’s delay in extending powers of entry, she thought it was the right decision.
“It’s sad that the government couldn’t implement what it wanted to do but it’s a wise decision at the moment,” she said.
“You can only really give rights of entry into private homes when you have a properly regulated profession.”
Pension fund deficits at new high
The deficit of final-salary pension schemes in the private sector hit a record £219bn at the end of February, the Pension Protection Fund (PPF) said.
The collective deficit of the almost 7,800 funds rose from £191bn a month earlier, and was up from a £67bn deficit recorded a year ago.
Only 9% of schemes still have a surplus with 91% now suffering a shortfall.
The PPF said the value of scheme assets dropped by nearly 5% in February due to falling share prices.
“Over the past year, the falling equity markets and bond yields have led to an overall worsening of the funding position,” said the PPF.
Horror show
The finances of pension schemes have become steadily worse since the middle of last year.
The actuarial firm Watson Wyatt warned that the growth of the deficits was an unfolding “horror” show, as things would be even worse if the size of the deficit was being estimated now.
“Thirty-first of March is a common date for measuring the assets and liabilities in a pension scheme,” said Rash Bhabra of Watson Wyatt.
“Companies know their plans for repairing pension deficits have been blown off course, but may still be shocked by the scale of the problem.
“The choice is going to be between paying much higher contributions, remaining in deficit for much longer, or a combination of the two.”
Last month, the Pensions Regulator warned companies not to keep on paying dividends to their shareholders if they thought they were having trouble affording the required level of pension contributions.
Safety net
The PPF exists to provide a safety net for scheme members if their employer goes bust and leave the company pension scheme underfunded.
That problem has become sharply worse as the recession has gripped the UK economy.
The number of large schemes that have been left stranded by their employer’s insolvency, such as Woolworths, is going to place considerable extra strain on the PPF’s own fund.
This is financed by a levy on solvent schemes, and by absorbing the assets of those funds that are rescued.
The PPF has fully taken on 71 schemes so far, covering more than 21,000 current and future pensioners, but there are many more in the pipeline.
A further 295 schemes are currently being assessed by the PPF to see if they are sufficiently insolvent to be bailed out.
House Prices Fall in February
House prices fell by another 2.3% in February in the UK, according to the UK’s biggest mortgage lender.
HBOS, now part of Lloyds Banking Group, said that the average UK home was now worth £160,327.
The lender said there were “tentative” signs that housing market activity was beginning to stabilise, but added 2009 would still be a difficult year.
The lender’s preferred annual change figure – which takes a three month average – is down 17.7%.
When looking at February’s prices, the cost of the average home was 17.8% lower last month than in February 2008.
The 2.3% monthly fall was more in line with the general downward trend in house prices seen over the past year than the 2% rise in prices reported in January by the lender.
The group’s housing economist Martin Ellis said that prices in the three months to February compared to the previous quarter – which provide a more balanced indicator of the underlying trend – were 3.6% lower.
But he did have some guarded good news for those wanting to get on the property ladder.
“While market activity remains at very low levels, there are some tentative signs that activity may be beginning to stabilise. The house price to earnings ratio – a key measure of housing affordability – has fallen to its lowest level for six years,” he said.
“Continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are, however, likely to mean that 2009 will be another difficult year for the housing market.”
The figures come a few days after rival lender, the Nationwide building society, reported that house prices fell 1.8% in February, taking the annual decline in prices to 17.6%.
Although mortgages have become cheaper following a string of interest rate reductions, the demand from lenders for a high deposit, falling prices and householders’ fears over job security have put the housing market under severe strain in the past year.
According to the Halifax, house prices now reached the same level as they were in August 2004.
Although Mr Ellis acknowledged that house prices were likely to continue falling in 2009, he said that homes were becoming more affordable.
David Smith, senior partner at Dreweatt Neate estate agents, was more strident in predicting some light at the end of the tunnel for homeowners.
“House prices may have fallen further, but we are now at the point, or certainly very close to the point, at which buyer and seller expectations converge,” he said.
